Actions And Economic Consequences Of Large Shareholders' Expropriation

The separation of ownership and management right results in the problems of agency by agreement,and the activities that main shareholders get their private benefits of control became important parts of principal-agent problems.In the countries with l ow level of in vestors protection,the re ason,such as incomplete laws and rules and imperfect monitoring mechanisms,leads to poor corporate governance.Therefore,ownership concentration becomes a possible alternative mechanism to corporate governance.However,it also may result in that managers may cater for the interests of main shareholders,but pay for small shareholders' interests.As a result,the problems of agency between shareholders and managers turn to the problems between different types shareholders.Wit h the a bility and motivation of t he controlling shareholders,they obtain private benefits of control power,which seriously damaged interests of small shareholders.As a country which is emerging market,the listed companies in China have a higher proportion of controlling shareholders.Because of t he particularity of China's securities market,the events,that the main shareholders of listed companies in China occupy the interests of small shareholders,happened frequently.At present,the reasons,such as relevant laws and regulations in China are not perfect,and the protection of small investors is poor,leads to that dividend policy has became a major method which used by majority shareholder to occupy the interests of small shareholders.Not only that,main shareholders encroach the interests of external investors in other forms,such as relat ed transactions and illegal information reported.The fundamental reason of main shareholder expropriation is information asymmetry between large shareholders and outside investors.This article is constructing a framework from information asymmetry,the contradiction between different types of shareholders,control ability of main shareholders and market monitoring.This article is based on the principal-agent theory and signaling theory.At first,factors which influencing expropriation of majority shareholders are analyzing by two aspects,such as shareholding structure and outside supervise environment.T hen,the m eans that main shareholders occupy others' interests will be discussed,while this article states consequence research from domestic and foreign scholars.Next,analysis of the causes for main shareholders encroachments from the view of information asymmetry will be deeply discussed.And then,with the actual case of Hareon expropriation of main shareholders,this article analyzes the means majority shareholders chosen and the consequence the act created.The article thinks that due to imperfect internal and external environment in China,the costs of main shareholders expropriation is very low compared to private benefits,so these acts occur frequently,and degree of these acts is high.The expropriations of main shareholders bring negative effect on listed companies,such as low business efficiency,bad results of operation and unstable financial standing.At the same time,it also makes a negative effect on market,for instance,negative cumulative abnormal in short time and investors withdraw capital in a long time.Fi nally,combined with the above analysis,this paper puts forward some suggestions from two aspects of internal governance structure and external regulatory environment,and points out the limitations of this study.The case selected in this paper is typical and representative,and the research of this case is helpful to promote the expropriation of large shareholders' tunneling.Imperfect supervising system,dominance structure and inadequate corporate governance are important influencing factors.While main shareholders taking private benefits of control,they will measure interests they get and costs they pay for,then they choose most favorable means.The benefit expropriations of majority shareholders will result in negative impact to the company,such as slow down poor operating,financial instability and lack of development funds.The expropriation of large shareholders will damage the value of the company,and result in loss of the interests of small shareholders,so our government should pay more attention to this kind of behavior,and improve the relevant laws and regulations to supervise and control the behavior of majority shareholders.Because this paper only uses case study method to analyze,lacking of a more systematic analysis and research,and analysis of the data which the annual report did not disclose the information,may have an impact on the resulting conclusion,which will result in some limitations in this paper.In order to study more deeply,it is better to choose other industries or other listed companies to conduct comparative analysis of the private benefit of control.